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INTRODUCTION External debt (or foreign debt) is that part of the total debt in a country that is owed to creditors

outside the country. The debtors can be the government, corporations or private households. The debt includes money owed to private commercial banks, othergovernments, or international financial institutions such as the International Monetary Fund(IMF) and orld !ank. "ote that the use of gross liability figures greatly distorts the ratio for countries which contain ma#or money centers, e.g. $nited %ingdom, because of &ondon's role as a ma#or money centre. (ontrast "et international investment position )*) defines it as +,ross e-ternal debt, at any given time, is the outstanding amount of those actual current, and not contingent, liabilities that re.uire payment(s) of principal and/or interest by the debtor at some point(s) in the future and that are owed to nonresidents by residents of an economy+. In this definition, IMF defines the key elements as follows0 (a) 1utstanding and 2ctual (urrent &iabilities3 For this purpose, the decisive consideration is whether a creditor owns a claim on the debtor. 4ere debt liabilities include arrears of both principal and interest. (b) )rincipal and Interest3 hen this cost is paid periodically, as commonly occurs, it is known as

an interest payment. 2ll other payments of economic value by the debtor to the creditor that reduce the principal amount outstanding are known as principal payments. 4owever, the definition of e-ternal debt does not distinguish between whether the payments that are re.uired are principal or interest, or both. 2lso, the definition does not specify that the timing of the future payments of principal and/or interest need be known for a liability to be classified as debt. (c) 5esidence3 To .ualify as e-ternal debt, the debt liabilities must be owed by a resident to a nonresident. 5esidence is determined by where the debtor and creditor have their centers of economic interest 6 typically, where they are ordinarily located 6 and not by their nationality. (d) (urrent and "ot (ontingent3 (ontingent liabilities are not included in the definition of e-ternal debt.

Definition of 'External Debt' The portion of a country's debt that was borrowed from foreign lenders including commercial banks, governments or international financial institutions. These loans, including interest, must usually be paid in the currency in which the loan was made. In order to earn the needed currency, the borrowing country may sell and e-port goods to the lender's country. 2 debt crisis can occur if a country with a weak economy is not able to repay e-ternal debt due to the inability to produce and sell goods and make a profitable return. The International Monetary Fund (IMF) is one of the agencies that keep track of the country's e-ternal debt. Reasons for taking external debts7. 8ustaining a high level of investment. 9. To adopt high level technology :. *-ploitation of natural resources. ;. <evelopment of basic economic infrastructure. =. Improvement in balance of payment position. Structural As ects of Indian External Debts! India had a mammoth e-ternal debt of > ?:.?@ billion (5s.7A: thousand (rore) outstanding at end6 march 7BB7, this rose to > B?.?; billion (5s. ;?9 thousand (rore) at end of March 9@@76@9 and > 7== billion (5s.AC= thousand (rore) at the end of March 9@@C. Thus in a span of one and half decades e-ternal debt rose by about two times in terms of <ollars.

Table 7

India's *-ternal <ebt 1utstanding ($8 > billion) 2t end 6 March 7BB 7BB = 9@@ @ 9@@7 9@@ 9 9@@: 7@@. B;.C B;.: BC.: BA.7 9 7@C.: 9@@; 9@@= 77A. A 9@@A 77C. ? 7;:.@ 9@@C

(ategory &ong 6

Term <ebt C=.: 8hort 6 ?.=;

<ebt <ebt 8hort term debt as D of debt 8hort term debt as D of debt Table 9 total total

;.:

:.B

:.A

9.C

;.C

;.;:

C.=

?.B

77.BC

7@7. ?:.? BB B?.: 7 B?.?

7@;. :

777.A ;

79:. 7

79A. C 7=;.BC

7@.9

=.:C

:.=?

9.CC

;.;=

;.@

:.BA

A.@

C.@

C.C9

India's *-ternal <ebt 5atios ($8 > billion) 2t end 6 March (ategory (oncessional <ebt debt (D) *-ternal debt as D of ,<) at 9?.C 9C.@ 99.7 99.A 97.9 9@.9 7C.? 7C.: 7=.? 6 market price as ;=.B ;=.: :?.B :=.= :A.@ :A.? :A.7 ::.7 :7.9 9=.C share of total 7BB7 7BB= 9@@@ 9@@7 9@@9 9@@: 9@@; 9@@= 9@@A 9@@C

In fact, debt service as a percent of e-ports was as high as ;B.= in 7BB@6B7 indicating that almost half the e-port earning were re.uired merely for debt servicing. 1n account of these facts some economists argued that the country was moving rapidly toward an e-ternal debt trap. The total debt servicing during 7BB@ to 7BB; the share of interest payments was around ;;D indicating the Einterest burdenF on the economy.

The ,overnment has realiGed the perils of relying too much on short term debts and undertook measures to reduce the dependence on such debt. 2s a result of these efforts, the share of short term debt in total debt which was 7@.9 percent at end March 7BB7, declined to C.C9 percent at the end of March 9@@C.

The debt service payments as a ratio of current receipts, continued to improve over the years declining steadily from :=.: D in 7BB7 to 7:.9 D in 9@@7 and then to ;.? D in 9@@A.

The position on e-ternal debt front has improved in recent years. The ratio of e-ternal debt to ,<) has declined from 9?.C D in 7BB7 to 99.A in 9@@7 and further to 7=.? D in 9@@A. This trend shows that the position of India on e-ternal debt front has improved in recent years.

IndiaHs e-ternal debt, as at end6March 9@7:, was placed at $8> :B@.@ billion showing an increase of $8> ;;.A billion or 79.B per cent over the end6March 9@79 level, primarily on account of short6 term trade credit, *(! and "5I deposits (Table 7).

The share of short6term debt in total debt rose over the preceding as well as corresponding .uarter of the previous year. The long6term debt at $8> 9B:.; billion and short6term debt at $8> BA.C billion accounted for C=.9 per cent and 9;.? per cent, respectively, of the total e-ternal debt as at end6March 9@7: (Table 7).

The share of e-ternal commercial borrowings ($8> 79@.B billion) continued to be the highest at :7.@ per cent of total e-ternal debt, followed by short term debt (9;.? per cent) and "5I deposits at (7?.9 per cent).

Impacted by an elevated level of current account deficit ((2<) and overall e-ternal financing re.uirements coupled with a deceleration in ,<) (gross domestic product) growth and a depreciating rupee, IndiaHs e-ternal debt is on a rising trend and has touched >:B@ billion as at the end of March :7 this year.

In its annual publication titled IIndiaHs e-ternal debt3 2 status report 9@7967:H released here on Friday, the <epartment of *conomic 2ffairs (<*2) maintained that it was a slew of these negative factors that resulted in the key e-ternal debt indicators witnessing some deterioration as at end6March 9@7: as compared to end6March 9@79.

2ccording to the status report, IndiaHs e-ternal debt stock stood at >:B@ billion, marking an increase of 79.B per cent over >:;=.= billion. The rise was mainly due to increase in short6term debt, commercial borrowings and non6resident Indian ("5I) deposits. "ong-ter# debt

The countryHs long6term e-ternal debt, the report said, was pegged at >9B:.; billion to reflect an increase of B.? per cent, while the short6term debt, at >BA.C billion, indicated a rise of 9:.C per cent. ith the long6term debt accounting for C=.9 per cent of the total e-ternal debt, the <*2 said that it indicated the dominance of long6term borrowings in total e-ternal debt stock. 1f the total e-ternal debt stock, the share of commercial borrowings stood at :7 per cent while short6term debt accounted for 9;.? per cent followed by "5I deposits (7?.9 per cent) and multilateral debt (7:.9 per cent). The governmentHs or sovereign e-ternal debt stood at >?7.C billion against >?7.B billion. 2ccordingly, the share of government debt in the total e-ternal debt was lower at 9@.B per cent against 9:.C per cent. Debt-$D% ratio

4owever, with the e-ternal debt6,<) ratio rising to 97.9 per cent from 7B.C per cent, the trend goes on to reflect mainly the depreciation of the rupee that led to a marginal contraction in the nominal ,<) in dollar terms. EThe composition of IndiaHs e-ternal debt is undergoing a change with the share of multilateral and bilateral debt in total e-ternal debt rapidly diminishing over the years, while that of commercial borrowings and "5I deposits rising,F the report said. <espite signs of deterioration in traditional e-ternal debt indicators, especially the increasing share of short6term in total e-ternal debt and higher financing needs, the <*2 status paper maintained that IndiaHs e-ternal debt has remained within manageable limits as indicated by e-ternal debt6,<) ratio of 97.9 per cent and debt service ratio of =.B per cent during 9@7967:.
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O&ER&IE'
7.7 IndiaHs e-ternal debt stock stood at $8> :B@.@ billion at end6March 9@7: as against the

end6March 9@79 level of $8> :;=.= billion. The increase in e-ternal debt was rise in short6term trade credit, commercial borrowings, and non6resident Indian deposits. The growth in e-ternal debt was 79.B per cent at end6March 9@7: broadly the same as at end6March 9@79. 4owever, the e-ternal debt6,<) ratio rose to 97.9 per cent at end6March 9@7:, as against 7B.C per cent at endMarch 9@79, reflecting mainly the depreciation of the rupee that led to a marginal contraction in the nominal ,<) in $8 dollar terms. 7.9 The composition of IndiaHs e-ternal debt is undergoing a change with the multilateral

and bilateral debt in total e-ternal debt rapidly diminishing over the years, commercial borrowings and "5I deposits rising. 2t end6March 9@7:, the share of commercial !orrowings in total e-ternal debt stock stood at :7.@ per cent, followed by short6term debt (9;.? per cent), "5I deposits (7?.9 per cent) and multilateral debt (7:.9 per cent). 7.: The maturity profile of IndiaHs e-ternal debt indicates dominance of long6term

borrowings. 2t end6March 9@7:, the long6term debt accounted for C=.9 per cent of while the remaining was short6term debt. The long6term debt at $8> 9B:.; billion at end6March 9@7: reflected an increase of B.C per cent, while the short6term debt at $8> BA.C billion increased by 9:.C per cent over the level of end6March 9@79. 7.; ,overnment (8overeign) e-ternal debt at end6March 9@7: stood at $8> ?7.C billion vis6a6vis $8> ?7.B billion at end6March 9@79. The share of ,overnment e-ternal debt in debt has declined over the years. ,overnment e-ternal debt accounted for 9@.B per cent of the total e-ternal debt at end6March 9@7: as against 9:.C per cent at end6March 9@79. 7.= The currency composition of IndiaHs e-ternal debt shows continued dominance of $8 dollar, accounting for =C.9 per cent of total e-ternal debt at end6March 9@7:. This is Indian rupee (9;.@ per cent), 8<5 (C.= per cent) and Japanese yen (A.: per cent). The rupee denominated debt comprises outstanding state credits e-tended to India by the erstwhile $nion of
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8oviet 8ocialist 5epublic ($885), securities.

rupee denominated "5I deposits, Foreign Institutional

InvestorHs (FII) investments in ,overnment Treasury !ills/dated securities and corporate debt

7.A

The valuation effect reflecting the appreciation of $8 dollar in the international market

moderated the increase in IndiaHs e-ternal debt. *-cluding the valuation effect, the stock of e-ternal debt at end6March 9@7: would have increased by $8> ==.? billion over the level at end6March 9@79. 7.C The level of IndiaHs e-ternal debt is on a rising trend with the elevated level of current ith rising debt flows,

account deficit and hence overall e-ternal financing re.uirements.

deceleration in ,<) growth and depreciating rupee, key e-ternal sector indicators witnessed deterioration at end6March 9@7: as compared to end6March 9@79. 4owever, debt service ratio at end6March 9@7: showed some improvement over end6March 9@79. Thus, the initiatives to contain current account deficit and promote stable non6debt resources such as F<I for meeting the e-ternal financing re.uirements of the economy assumes importance. 7.? IndiaHs e-ternal debt has remained within manageable limits as indicated by e-ternal

debt6,<) ratio of 97.9 per cent and debt service ratio of =.B per cent during 9@7967:. There are however, signs of deterioration in traditional e-ternal debt indicators, especially that of increasing share of short6term in total e-ternal debt and higher financing needs. The summary of key e-ternal debt indicators from 9@@=6@A is shown in Table 7.7 and from 7BB@6B7 at 2nne- II. 7.B IndiaHs key debt indicators compare well with other indebted developing countries. orld !ank, which contains e-ternal

2ccording to the International <ebt 8tatistics, 9@7: of the

debt data for 9@77, IndiaHs position was fourth in terms of absolute e-ternal debt stock, after (hina, 5ussian Federation and !raGil in 9@77. The ratio of IndiaHs e-ternal debt stock to gross national income (,"I) at 7?.: per cent was the third lowest with (hina having the lowest ratio at B.; per cent.

C"ASSI(ICATION O( E)TERNA" DE*T

8tock of *-ternal <ebt IndiaH e-ternal debt stock in $8 dollar terms stood at $8> :B@.@billion at end6March 9@7: vis6K6vis $8> :;=.= billion at end6March 9@79, recording an increase of 79.B per cent broadly the same level as at end6March 9@79. hile in rupee terms, nominal ,<) grew by 77.C per cent, in dollar terms there was a contraction of 7.C per cent. 2s a conse.uence, the e-ternal debt to ,<) ratio rose from 7B.C per cent at end6March 9@79 to 97.9 per cent at end6March 9@7:. In rupee terms, e-ternal debt stood at L 9,77B,A9@ crore, reflecting a rise of L :,=:,=A: crore (9@.@ per cent) over the end6March 9@79 estimate of L 7,CAA,@=C crore (Table 9.7). The increase in e-ternal debt stock was primarily led by 9.7.9 The difference between growth rates of e-ternal debt in rupee and $8 dollar terms at end6March 9@7: and end6March 9@79 reflects the sharp depreciation of the rupee vis6K6vis the $8 dollar during the period. 2t the same time, the $8 dollar also appreciated against ma#or international currencies. *-ternal debt is contracted in different currencies and the data on e-ternal debt is usually indicated in terms of $8 dollar. The valuation effect arises on account of the fact that e-change rate of $8 dollar fluctuates over time vis6a6vis other currencies. *-cluding the valuation effect due to the appreciation of $8 dollar against most international currencies, the stock of e-ternal debt at end6March 9@7: in $8 dollar terms would have increased by $8> ==.? billion vis6a6vis thelevel at end6March 9@79. 4igher short6term trade credit, commercial borrowings and "5I deposits. IndiaHs e-ternal debt to ,<) ratio has declined significantly since the early 7BB@s (Figure 9.7). Though the share of short
8

term debt has increased in recent years (partly due to an increase in coverage from 9@@=6@A onwards), IndiaHs e-ternal debt continues to be dominated by borrowings of longer maturity. The increase in IndiaHs e-ternal debt at end6March 9@7: over end6March 9@79 is

primarily attributed to short6term debt that accounted for ;7.A per cent of the rise in total debt, followed by commercial borrowings (:A.9 per cent) and "5I deposits (9C.; per cent). 8hort6term debt witnessed high growth due to rise in trade credits which is a natural concomitant of growth in value of imports.

Though commercial borrowings continued to drive the rise in the long term e-ternal debt stock, the rate of growth of these borrowings at end6March 9@7: over end6March 9@79 (7=.; per cent) is lower than that recorded (7?.: per cent) between end6March 9@77 and end6March 9@79. 2mong the long6term components 6 e-ternal commercial borrowings, "5I deposits and multilateral debt accounted for A9.; per cent of total e-ternal debt, while the remaining 79.? per cent was accounted for by the other components including bilateral debt and e-port credit. The share of commercial borrowings continued to be the highest (:7.@ per cent) in total e-ternal debt followed by "5I deposits (7?.9 per cent) and multilateral debt (7:.9 per cent). The component6wise share of e-ternal debt since 9@@: in rupee crore and $8 dollar million are contained at 2nne- III and 2nne- IM respectively. The .uarter6wise e-ternal debt outstanding since March 9@77 in rupee crore and $8 dollar million is detailed in 2nne- M and MI, respectively. ith the rising share of non6,overnment debt, the composition of such debt assumes importance. 2s is evident from Table 9.A, the e-posure of the financial sector and the non6financial private sector to e-ternal sources of finance is larger compared to that of the non6financial public sector.
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CURRENC+ CO,%OSITION The currency composition of IndiaHs e-ternal debt reveals that $8 dollar denominated debt remained dominant. 2t end6March 9@7:, the share of the $8 dollar debt in total e-ternal debt stood at =C.9 per cent, followed by the Indian rupee (9;.@ per cent), 8<5 (C.= per cent) and Japanese yen (A.: per cent). S-ORT-TER, E)TERNA" DE*T S.ort-ter# debt based on original #aturit/ &arge magnitude of short term e-ternal debt may pose problems in the event of a global li.uidity crisis when access to international financial markets get limited and the roll6over/refinancing opportunities are not easily forthcoming. IndiaHs short6term debt (by original maturity) has e-hibited an upward trend, both in absolute terms and as a percentage of total debt.

This is, however, partly on account of revision in the coverage of short6term debt in recent years9. The data on short6term debt includes3 (i) Trade credit up to 7?@ days as well as above 7?@ days and up to 7 year, (ii) Foreign Institutional Investor corporate securities, (iii) investments by foreign central banks and international institutions in Treasury !ills, and (iv) e-ternal debt liabilities of central bank and commercial banks. (FII) investments in ,overnment Treasury !ills and

IndiaHs short6term e-ternal debt stood at $8> BA.C billion at end6March 9@7:, showing an
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increase of 9:.C per cent over end6March 9@79 (Figure 9.?). Trade credits accounted for ?B.? per cent of short6term debt at end6March 9@7: as against ?:.: per cent as at end6March 9@79. The share of FII investments in short term debt has, however, declined

Instru#ent-0ise Classification The instrument6wise (viG., bonds, loans, trade credits and deposits) classification of e-ternal debt, along with borrower details (Table 9.C and 2nne- MIII) depicts the ma#or forms through which individual sectors are gaining access to e-ternal financing. 2t end6March 9@7:, e-posure across sectors is primarily in the form of loans (including multilateral, bilateral credit and bank loans) (;=.9 per cent), followed by trade credits (99.? per cent), deposits (7B.C per cent) and bonds (79.: per cent). For the ,overnment and the non6financial private sector, the bulk of e-ternal debt is in the form of loans, while deposits constitute the ma#or instrument for the financial sector. Trade credits constitute the ma#ority share in short6term e-ternal debt. *-ternal debt by residual maturity includes short term debt by original maturity as well as long term debt repayments falling due within the ne-t twelve months. The study of e-ternal debt by residual maturity is useful in assessing li.uidity re.uirements to service contractual obligations within a year. 8hort6term debt is also known as a measure of e-ternal financing re.uirements of the economy. !ased on residual maturity, IndiaHs short6term debt stood at $8> 77A.7 billion at end6 March 9@7: (Table 9.7@). 2t this level, it accounted for 9B.? per cent of total e-ternal debt and :B.? per cent of foreign e-change reserves. The details of short6term debt by residual maturity are contained at 2nne- N.

CONCESSIONA" DE*T (oncessionality of e-ternal debt indicates softer terms of a loan in relation to prevailing market conditions. (oncessionality could be reflected in terms of lower rate of interest, longer grace or repayment periods and is measured by the difference between the face value of a credit and the sum of the discounted future debt service payments.
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<ifferent multilateral institutions follow different norms for classifying credits into concessional and non6concessional. In India, loans from International <evelopment 2ssociation (I<2), International Fund for 2gricultural <evelopment (IF2<), 5upee debt are categoriGed as concessional. The proportion of concessional loans in total e-ternal debt has declined steadily from 9:.@ per cent in 9@@C to 77.C per cent at end6March 9@7: (Figures 9.B and 9.7@ and Table 9.77). The decline in the share of concessional debt reflects the declining share of multilateral and bilateral debt in IndiaHs total e-ternal debt.

DE*T SER&ICE INTRODUCTION :.7.7 <ebt service payments and debt service ratio occupy a central place in any analysis of e-ternal debt. <ebt service payments or servicing of e-ternal debt is defined as the set of payments, inclusive of both principal and interest, made to meet debt obligation to non6resident creditors. <ebt service ratio, measured by the proportion of gross debt service payments to current receipts (minus official transfers) of !alance of )ayments (!o)), serves as an important indicator of debt sustainability. 2 larger outgo on account of debt service payments could pre6empt a significant part of foreign e-change earnings, straining the e-change rate. 2 higher debt service ratio as well as large debt service payments also increase the risk of e-posing the country to e-ternal shocks.

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Trends in India1s Debt Ser2ice %a/#ents IndiaHs e-ternal debt service payments and debt service ratio in 9@7967: have shown a decline (Figure :.7). ,ross debt service payments stood at $8> :7.: billion during 9@7967:, marginally lower than $8> :7.= billion in the previous year. )rincipal repayments accounted for A=.7 per cent in the IndiaHs total debt service payments in 9@7967:, while the rest :;.B per cent was on account of interest payments. <ebt service ratio is estimated at =.B per cent in 9@7967: vis6a6vis A.@ per cent in 9@77679. The decline in debt service ratio in 9@7967: as compared to previous year was due to relatively lower repayments of e-ternal commercial borrowings in 9@7967: than the previous year. *-ternal commercial borrowings have a share of C;.9 per cent in total debt service payments. 1ther components viG., debt service payments under e-ternal assistance (7:.A per cent), "5I deposits (79.7 per cent) and rupee debt service (@.9 per cent) contributed the rest (Figure :.:). The dominance of e-ternal commercial borrowings is an indication of growing recourse to their use by the companies to meet their financing re.uirements. IndiaHs e-ternal debt service payments by creditor category are presented in 2nne- NII.

:.9.;

The principal repayments under short6term debt are not included in total debt service

payments, which is in line with the best international practice:. "et disbursement (gross disbursements minus principal repayments) on short6term debt however, is a useful indicator of e-ternal shocks. The e-perience of global financial crisis shows that gross disbursements of short6term credit to India declined in 9@@?6@B, while repayment increased significantly, resulting in net outflows. inflows during 9@@B67@ and 9@7@677. It e-perienced some moderation in 9@77679 reflecting volatilities in global financial markets due to deepening euro6Gone sovereign debt crisis. <uring 9@7967:, short6term trade credit showed substantial increase over the previous year and stood at $8> 97.C billion. ith the revival of global financial markets and economic growth, the short6term trade credit e-perienced net

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343

Ter#s of *orro0ings

:.:.7 Implicit interest rate on total e-ternal debt is estimated by taking interest payments during the year as a percentage of the outstanding debt at the end of the previous year. <uring 9@7967:, the implicit interest rate on total e-ternal debt was :.9 per cent (9.? per cent during 9@77679). The implicit interest on "5I deposits increased to A.; per cent in 9@7967: as against ;.= per cent in 9@77679. The interest on e-ternal assistance remained at 7.9 per cent, marginally higher from 7.7 per cent during 9@77679. The implicit interest rate on e-ternal commercial borrowings also witnessed increase from the previous year and stood at =.C per cent in 9@7967:.

:.;

%ro5ections of Debt Ser2ice %a/#ents

:.;.7 <ebt service pro#ections based on long6term debt outstanding at the end of March 9@7: show that debt service payments would reach a high of $8> 9A.@ billion ($8> 99.: billion principal repayment and $8> :.? billion interest) in 9@7=67A (Table :.= and Figure :.;). The large debt service payments are primarily on account of higher repayments of *(!s. The repayment of "5I deposits and FII investment in debt securities are not included in the pro#ections.

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INTERNATIONA" CO,%ARISON

INTRODUCTION The cross6country comparison of e-ternal debt provides an assessment of IndiaHs e-ternal debt position in international perspective. The source of data is orld !ankHs annual publication titled IInternational <ebt 8tatistics 9@7:H, which provides e-ternal debt data and key indicators of the developing countries = . 2 comparative picture of IndiaHs e-ternal indebtedness vis6K6vis top twenty developing debtor countries is given in 2nne- NIII.

;.9

External Debt of De2elo ing Countries ;.9.7 The combined e-ternal debt stock of 79? developing countries stood at $8> ;,?CA.@

billion at end6<ecember 9@77, reflecting an increase of $8> ;A:.? billion (7@.= per cent) over 9@7@ level of $8> ;,;79.9 billion. The long6term debt (including IMF) accounted for C;.; per cent of total e-ternal debt, while the remaining was short6term debt (9=.A per cent). 8hort6term debt was mainly trade related and was 7C.9 per cent of developing countriesH imports in 9@77. ;.9.9 &ong6term e-ternal debt of developing countries increased by BA.? per cent between

9@@@ and 9@77. !orrower6wise details of long6term e-ternal debt shows a shift towards private sector borrowers with its share in long6term e-ternal debt increasing over the years. There was some
15

decline in the share of private sector in total long6term debt in 9@@B. The share of public and private sector borrowers in long6term debt was almost evenly divided at end 9@77. ;.9.: The rising level of e-ternal debt stock does not necessarily translate into increasing debt burden, as it would also depend upon the rate of growth of income and e-port earnings vis6a6vis the accumulation of new e-ternal obligations. The key debt indicators of developing countries in the decade of 9@@@s witnessed improvement up to the year 9@@?, as indicated by e-ternal debt to gross national income (,"I) and e-port earnings ratios. <uring the period 9@@@69@@?, e-ports rose sharply, led by increased e-port volume and the high international prices for primary commodities. Further, the changing composition of capital flows from debt to e.uity and large scale forgiveness of e-ternal debt obligations for low6income countries played an important role in reducing the debt burden. ;.9.; The trend of improvement of e-ternal debt in terms of ,"I and e-ports from the start of decade to 9@@? was interrupted in 9@@B, reflecting the impact of global economic and financial crisis.

*-ports declined by almost 9@ per cent in 9@@B vis6a6vis 9@@?. Together with higher e-ternal borrowings to finance current account deficits and fiscal stimulus measures, this led to increase in the ratio of total debt stock to e-ports to ?= per cent in 9@@B, the highest level since 9@@=. The ratio of debt stock to ,"I also rose in 9@@B, reflecting the decline in developing countriesH combined ,"I in 9@@B over 9@@?. 4owever, several developing countries witnessed rapid recovery in their economy in 9@7@69@77, reflecting the improvement in terms of key debt indicators.

;.9.= 2t end 9@77, the ratio of e-ternal debt of developing countries to ,"I was 97.= per cent vis6a6 vis 99.C per cent in 9@7@ and 9;.7 per cent in 9@@B. The e-ternal debt stock in terms of e-ports was AB.: per cent compared to CA.: per cent in 9@7@ and ?=.@ per cent in 9@@B. The risk of rise in the share of short6term debt in total debt however was mitigated by international reserves. 8ome developing countries drewdown their international reserves due to global crisis0 however taken together, developing countries have accumulated reserves since the onset of the crisis.

;.:

Ca ital (lo0s to De2elo ing Countries


16

;.:.7 "et capital flows to developing countries in 9@77 amounted to $8> 7,7@C billion, recording a decline of ?.A per cent from the level of previous year. The decline in net capital flows in 9@77 over 9@7@ owe to portfolio e.uity. )ortfolio e.uity flows in 9@77 recorded net outflow of $8> 9.9 billion as against net inflow of $8> 79@.9 billion in 9@7@. 4owever, net F<I inflows in 9@77 increased to $8> A;;.; billion from $8> =?9.C billion in 9@7@. The share of net F<I inflows in total net capital inflows increased to =?.9 per cent in 9@77 from ;?.7 per cent in 9@7@. 2bout half of the global F<I was directed to developing countries, reflecting the investorsH attraction with improvement in the business, regulatory environment and relatively high economic growth.

;.:.9 (omposition of capital flows during the decade of 9@@@s witnessed a change in favour of debt flows (Figure ;.:). 8hare of debt related flows in net capital flows of all developing countries increased from 9:.C per cent during 9@@7 to 9@@= (annual average) to :9.= per cent in 9@@A to 9@7@. <uring the same period, the share of e.uity flows declined from CA.: per cent in 9@@7 to 9@@= to AC.= per cent in 9@@A69@7@. The percentage share of e.uity and debt inflows in total net capital inflows was =? per cent and ;9 per cent, respectively in 9@77, broadly the same as in the previous year. The net debt inflows (official and private creditors) showed a decline of ?.A per cent in 9@77 over 9@7@. The decline in debt inflows was due to lower debt inflows from the official creditors. There has been substantial change in the composition of debt inflows from the official and private creditors.

;.=

India1s External Debt %osition in International %ers ecti2e


17

;.=.7 IndiaHs position was fourth in terms of absolute e-ternal debt stock, after (hina, 5ussian Federation and !raGil in 9@77. In terms of e-ternal debt stock to ,"I ratios, IndiaHs position (7?.: per cent) was the third lowest among the top twenty debtor countries of the developing world with (hina having the lowest ratio of B.; per cent. ;.=.9. The cover of reserves for e-ternal debt across the countries remained in the ranges of

7;.A per cent (MeneGuela) to ;AC.: per cent ((hina) among the top twenty developing debtor countries in 9@77. In terms of the cover of e-ternal debt provided by the reserves, IndiaHs position was seventh highest at ?7.7 per cent. The ratio of short6term to total debt ranged between ;.9 per cent ()akistan) to AB.A per cent ((hina) (Figure ;.C). IndiaHs position at 9:.: per cent was the fourteenth lowest. These estimates may not however be entirely comparable due to differences in coverage. ;.=.: )resent Malue ()M) concept is considered as a useful measure of indebtedness. The )M

of e-ternal debt outstanding is arrived at by discounting the nominal value of all future debt service payments by the prevailing market rates of interest and aggregating such )Ms. The interest rates used in the calculations are the (ommercial Interest 5eference 5ates for each relevant currency compiled and published by the 1rganiGation for *conomic (ooperation and <evelopment (1*(<). The )M of IndiaHs e-ternal debt was $8> 9?:.= billion in 9@77, with the ratios of )M of e-ternal debt to ,ross "ational Income and e-port of goods and services at 7? per cent and CB per cent respectively. ;.=.; The Ouarterly *-ternal <ebt 8tatistics (O*<8) database, #ointly developed by the

orld !ank and the IMF, brings together detailed e-ternal debt data of countries that are subscribing to IMFHs 8pecial <ata <issemination 8tandard (8<<8)/,eneral <ata <issemination 8ystem (,<<8). 2s per the latest O*<8 data available for end March 9@7:, India ranked at the third position after 5ussian Federation and !raGil, among developing debtor countriesA.

SO&EREI$N E)TERNA" DE*T

Introduction =.7.7 8overeign e-ternal debt refers to foreign debt contracted by the ,overnment of India. 8overeign e-ternal indebtedness or the e-tent of e-ternal liabilities of the ,overnment has assumed importance in the backdrop of sovereign debt crisis in the euro Gone. ,overnment of India, unlike several other economies, does not access international capital markets for funds and the bulk of government
18

borrowings are primarily from multilateral and bilateral sources and are of long maturities. The share of sovereign debt in IndiaHs total e-ternal debt has declined over the years, mainly because of the increasing role of private sector in the countryHs economy. =.7.9 2s per 2rticle 9B9 of the Indian (onstitution, the (entral ,overnment can borrow

abroad upon the security of the (onsolidated Fund of India within limits (if any) specified by the )arliament from time to time, while 2rticle 9B: of the Indian (onstitution mandates that 8tate ,overnments can borrow only from internal sources. In pursuance of a prudent e-ternal debt management policy, the ,overnment of India has been borrowing only from the multilateral and bilateral sources. This chapter provides an overview of emerging trends in the countryHs sovereign e-ternal debt, e-plicit contingent liabilities of the ,overnment, debt service payments and pro#ected debt service obligations under ,overnment 2ccount up to the year 9@9969:.

=.9

Co# osition of So2ereign External Debt =.9.7 8overeign e-ternal debt (8*<) stood at $8> ?7.C billion at end6March 9@7: as against

$8> ?7.B billion at end6March 9@79. The share of sovereign debt in total e-ternal debt has declined over the years (Figure =.7). There are two ma#or categories under 8*<6 (i) *-ternal <ebt on ,overnment 2ccount under *-ternal 2ssistance and (ii) I1ther ,overnment *-ternal <ebtH that comprises 5upee debt owed to 5ussia, defence debt, 8<5 allocations by IMF and FII investment in ,overnment securities. The composition of multilateral and bilateral sovereign debt at end 6March 9@7: is presented in the Figures = .; and = .= .

International De2elo #ent Association (I<2) accounts for the bulk (=B .B per cent), followed by the International !ank for
19

5econstruction and <evelopment

(I!5<, 9 @ .= per cent), the 2sian <evelopment !ank

(2<!, 7 ?.? per cent), the International Fund for 2gricultural <evelopment (IF2<, @ .? per cent) and I1thersH (@ .7 per cent). In the bilateral sovereign debt, a substantial portion is accounted by Japan (C = .B per cent), followed by ,ermany (7 ; .; per cent), 5ussia ( A .A per cent) and France (7 .A per cent) and $nited 8tates (7 .= per cent) (Figure = .= ). = .9 .= The composition of the countryHs multilateral sovereign debt is undergoing changes over the years. The share of I<2 in total multilateral sovereign debt has decreased from around C : .: per cent in 9 @ @ ? to =B .B per cent at end 6March 9 @ 7 :,while that of I!5< increased from 7 A .= per cent to 9 @ .= per cent over the same period . The share of 2<! also increased to 7 ? .? per cent at end 6March 9 @ 7: from 7 @.7 per cent at end 6March 9 @ @ ? . 643 Currenc/ Co# osition =.:.7 The currency composition indicates that 8<5 continues to remain the predominant

currency in sovereign e-ternal debt, primarily due to borrowings from I<2. The share of 8<5 stood at :A.@ per cent, (Table =.9) followed by the $8 dollar (9A.: per cent), Indian rupee (7C.C per cent), Japanese yen (7A.= per cent) and the *uro (:.= per cent) at end6March 9@7: (2nne- NMII). This in con#unction with the earlier composition at end6March 9@@? reflects some shifts. 646 Ex licit Contingent "iabilit/ =.=.7 *-plicit (ontingent liabilities refer to such legal obligations that may devolve on the

,overnment budget in the event of a default by a borrower of the principal and / or interest of a credit. 8overeign e-ternal contingent liabilities relate to guarantees provided by the ,overnment of India for specific loans raised by the non6,overnment sector from non6residents. The magnitude of contingent liabilities is regularly monitored from the point of view of their implications for overall macroeconomic and financial stability. =.=.9 In accordance with the IFiscal 5esponsibility and !udget Management (F5!M) 5ulesH, there is an overall cap of @.= per cent of ,<) in any financial year on the .uantum of (entral ,overnment guarantees. The (entral ,overnment e-tends guarantees primarily on loans from multilateral/bilateral agencies to various public sector undertakings/ financial institutions. ,overnment guaranteed e-ternal debt has remained relatively low, in the range of $8> A.A6 B.= billion during 9@@? to 9@7:.

20

=.=.: The share of ,overnment and ,overnment guaranteed debt in total e-ternal debt as well as that of non6government debt guaranteed by the ,overnment are declining. ithin the category of non6,overnment debt guaranteed by the ,overnment, the share of the non6financial public sector has marginally declined from CA.? percent in 9@@C to C@.B percent at end6March 9@7:. The share of the financial sector (that represents borrowings by banks and financial institutions) has registered a rise from around 97.C percent of total non6,overnment guaranteed debt in 9@@? to 9B.@ percent at end6March 9@7:.

647

%ro5ections of Debt Ser2ice on $o2ern#ent Account =.A.7 Total sovereign e-ternal debt service payments, based on disbursed outstanding debt at

end6March 9@7:, are estimated to rise gradually from $8> :.C billion in 9@7:67; to $8> ;.? billion in 9@9969: (Table =.=). The institution wise break6up of both multilateral and bilateral components of debt service is contained in 2nne- NN.

848

External Debt of To T0ent/ De2elo ing Debtor Countries ;.;.7 In 9@77, e-ternal debt of top twenty developing debtor countries together stood at $8>

;,@@7.9 billion, accounting for ?9.7 per cent of total e-ternal debt of $8 > ;,?CA.@ billion of all 79? developing countries. 2mong the top twenty debtor countries, the e-ternal debt stock of one country (2rgentina) showed decline, while the e-ternal debt of other countries recorded increase between 9@@@ and 9@77 . 8harp increases were noticed in the e-ternal debt stock of 5omania (7 @=:.7 per cent), $kraine (?AC.9 per cent) and %aGakhstan (?A= .; per cent). (hina and India recorded an increase of :C@.A per cent and 9:@.A per cent, respectively in total e-ternal debt during the period 9@@@69@77.

94 External Debt ,ross e-ternal debt, at a point in time, is defined as Ethe outstanding amount of those actual current, and not contingent, liabilities that re.uire payment(s) of principal and/or interest by the debtor at some point(s) in the future and that are owed to non6residents by residents of an economyF (*-ternal <ebt 8tatistics 6 ,uide for (ompilers and $sers, International Monetary Fund (IMF), 9@@:).

21

:4 Original and Residual ,aturit/ (i) 1riginal maturity is defined as the period encompassing the precise time of creation of the financial liability to its date of final maturity. (ii) <ebt by residual maturity (or remaining maturity) includes short term debt by original maturity of up to one year, combined with medium to long term debt repayment by original maturity falling due within the twelve month period following a reference date. *-ternal debt is commonly e-pressed in terms of original maturity. 34 "ong and S.ort-ter# 1ne way of classifying e-ternal debt is into long and short6term. &ong term debt is defined as debt with an original maturity of more than one year, while short term debt is defined as debt repayments on demand or with an original maturity of one year or less. The coverage of short6term was redefined from 9@@=6@A by including supplierHs credit upto 7?@ days and FII investment in the ,overnment Treasury !ills and other instruments and further in March 9@@C by including e-ternal debt liabilities of the banking system and the investment in the ,overnment securities by the foreign central banks and the international institutions.

84 ,ultilateral and *ilateral Debt Multilateral creditors are primarily multilateral institutions such as the International <evelopment 2ssociation (I<2), International !ank for 5econstruction and <evelopment (I!5<), 2sian <evelopment bank (2<!) etc. !ilateral creditors are sovereign countries with whom sovereign and non6sovereign entities enter into one6to6one loan arrangements. 8ome of IndiaHs bilateral creditors who e-tend loans to both sovereign and non6sovereign debtors include Japan, ,ermany, $nited 8tates, France, "etherlands, 5ussian Federation etc.
22

64 So2ereign ;$o2ern#ent< and Non-So2ereign ;Non-$o2ern#ent< debt 8overeign debt includes (i) e-ternal debt outstanding on account of loans received by ,overnment of India under the Ie-ternal assistanceH programme, and civilian component of 5upee <ebt0 (ii) other ,overnment debt comprising borrowings from IMF, defence debt component of 5upee debt as well as foreign currency defence debt and (iii) FII investment in ,overnment 8ecurities. "on6 sovereign includes the remaining components of e-ternal debt.

74 Trade Credits=Ex ort Credits Trade credits/*-port credits refer to loans and credits e-tended for imports directly by overseas supplier, bank and financial institution to sovereign and non6sovereign entities. <epending on the source :; of finance, such credits can be either suppliersH credit or buyersH credit. (i) 8uppliersH (redit3 8uch credit is e-tended by the overseas supplier of goods in the form of deferred payments. (ii) !uyersH (redit3 8uch credit is provided by a bank or financial institution and is generally governed by 1*(< consensus terms and carries insurance from e-port credit agency of the concerned country. >4 External Co##ercial *orro0ings The definition of commercial borrowing includes loans from commercial banks, other commercial financial institutions, money raised through issue of securitiGed instruments like !onds (including India <evelopment !onds (I<!s) and 5esurgent India !onds (5I!s)), Floating 5ate "otes (F5") etc. It also includes borrowings through !uyersH credit P 8upplier credit mechanism of the concerned countries, International Finance (orporation, ashington QIF( ( )R, "ordic Investment !ank and private sector borrowings from 2sian <evelopment !ank (2<!).

?4 NRI De osits "on65esident Indian ("5I) deposits are of three types3


23

(i) "on 5esident (*-ternal) 5upee 2ccount S"5(*)52T <eposits were introduced in 7BC@. 2ny "5I can open an "5* account with funds remitted to India through a bank abroad. 2 "5* account maintained in Indian rupee may be opened as current, savings or term deposit. The amount held in these deposits together with the interest accrued can be repatriated.

(ii) Foreign (urrency ("on 5esident) (!anks) <eposits SF("5 (!)T were introduced with effect from May 7=, 7BB:. These are term deposits maintained only in )ound 8terling, $.8. dollar, Japanese Uen, *uro, (anadian dollar and 2ustralian dollar. The minimum maturity period of these deposits was raised from si- months to 7 year effective 1ctober 7BBB. From July 9A, 9@@=, banks have been allowed to accept F("5 (!) deposits up to a ma-imum maturity period of five years against the earlier ma-imum limit of three years.

(iii) "on65esident 1rdinary 5upee ("51) 2ccounts 6 2ny person resident outside India may open and maintain "51 account with an 2uthorised dealer or in authorised bank for the purpose of putting through bonafide transactions denominated in Indian 5upees. "51 2ccounts may be opened/maintained in the form of current, saving, recurring or fi-ed deposits. "5I/)ersons of Indian 1rigin ()I1) may remit an amount not e-ceeding $8< 7 million per financial year out of the balances held in "51 2ccounts.

@4 Concessional Debt ,enerally, a loan is defined as IconcessionalH when it carries a grant element of 9= per cent or more. In India, loans from multilateral (the International <evelopment 2ssociation (I<2), International Fund for 2gricultural <evelopment (IF2<)) and bilateral sources (including rupee debt that is serviced through e-ports) is categoriGed as IconcessionalH, based long maturity and less6than6market rates of interest charged on them. 9A4 External Debt fro# Official and %ri2ate Creditors *-ternal <ebt from multilateral and bilateral sources of finance, e-port credit component of bilateral
24

credit, e-port credit for defence purposes and rupee debt, etc is called as 1fficial debt. *-ternal debt from private creditor denotes sources of loans raised under *(!s, "5I deposits, e-port credits (other than those included under official creditors, and short6term debt. 994 Debt to $D% Ratio The ratio of debt stock to ,<) is derived by scaling the total outstanding debt stock (in rupees) at the end of the financial year by the ,ross <omestic )roduct (in rupees at current market prices) during the financial year. 9:4 Debt Ser2ice Ratio <ebt service ratio is measured by the proportion of total debt service payments (i.e. principal repayment plus interest payment) to current receipts (minus official transfers) of !alance of )ayments (!o)). It indicates the claim that servicing of e-ternal debt makes on current receipts and is, therefore, a measure of strain on !o) due to servicing of debt service obligations. 934 *orro0er Classification of External Debt The borrower classification of e-ternal debt provides breakup into ,overnment (8overeign) and non6 ,overnment debt. The latter is further categoriGed into financial, public and private sectors. Financial sector represents borrowings by banks and financial institutions including long6term "5I <eposits. )ublic sector debt represents borrowings of non6 financial public sector enterprises and private sector debt represents borrowings of non6 financial private sector enterprises.

984 External Debt Deno#inated in Ru ee Currenc/ $nlike foreign currency denominated e-ternal debt, where the currency risk is borne by the borrower,the characteristic feature of domestic currency denominated debt is that the e-change risk is borne by the creditor. The contractual liability, however, is settled in terms of the designated foreign currency (*-ports in case of 5upee debt owed to 5ussia).This implies that the borrower gains (and the creditor loses) when the local currency depreciates since less has to be repaid in foreign currency terms and vice versa. IndiaHs *-ternal <ebt denominated in 5upees consist of the following categories36

7.

5upee <ebt0 The outstanding state credits (both defence and civilian) e-tended to the erstwhile $nion of 8oviet 8ocialist 5epublic ($885). The debt is
25

India by

denominated in 5upees

and repayment of such debt is made primarily through ii.

the e-port of goods to 5ussia0

5upee <enominated "5I <eposits viG. the "on65esident (*-ternal) 5upee 2ccount S"5(*)52T and the "on65esident 1rdinary 5upee ("51) 2ccounts. The "5(*)52 is

categoriGed as an e-ternal debt liability since the principal amount held in such as the interest accrued are repatriable0 iii.

accounts as well

Foreign Institutional InvestorHs (FII) Investments in ,overnment Treasury !ills (T!s) and 7=.<issemination of *-ternal

dated securities0 and iv.FII Investments in corporate debt securities. <ebt 8tatistics in India (i)

The ,overnment of India has been publishing the 8tatus 5eport on IndiaHs e-ternal

debt

annually since 7BB:. The coverage of e-ternal debt statistics has been e-panded disseminating data on e-ternal debt under IMFHs International (ii) Monetary Fund.

over the years to

align it with the best international practices and make it more comprehensive. India has also been 8pecial <ata <issemination 8tandards (8<<8) orld !ank and the and Ouarterly *-ternal <ebt 8tatistics (O*<8) database #ointly developed by the

The e-ternal debt statistics of India are disseminated with a lag of three months from the end at the IOuarterly *-ternal

of the reference .uarter in both the country specific and 8<<8 format and are accessible www.finmin.nic.in and www.rbi.org.in. In "ovember 9@@A, India #oined <ebt 8tatisticsH database, #ointly developed by the same for release on the orld !ankHs website. orld

!ank and International Monetary Fund

and has been compiling e-ternal debt statistics in the O*<8 format every .uarter and furnishing the

(iii) $nder the present arrangement, the *-ternal <ebt Management $nit (*<M$) in the of Finance (MoF), <epartment of *conomic 2ffairs (<*2), ,overnment of debt data for the .uarters ending 8eptember and <ecember, annual publication

Ministry

India compiles e-ternal

while the 5eserve !ank of India (5!I)

compiles and disseminates data for the .uarters ending March and June every year. In addition, an IIndiaHs *-ternal <ebt3 2 8tatus 5eportH is brought out by the *<M$, MoF, ,overnment of India. 1ffice of the (ontroller of 2id 2ccounts P 2udit ((222) of the <*2, MoF publishes a report titled I*-ternal 2ssistanceH which provides a
26

detailed account of e-ternal assistance received

by the ,overnment of India in the

form of loans/credits and grants from foreign countries, profile of e-ternal debt availed

international institutions and other organiGations. It provides donor/country/currency6wisedetails along with information relating to interest rate structure and maturity from multilateral and bilateral creditors. (iv) The data published for the current .uarter/year are termed as IOuick *stimatesH. Ouick asI)artially *-traordinary

estimates data are sub#ect to revision during the ne-t twelve months which are labelled 5evisedH as and when they are published. The partially revised released as final data with a lag of twenty four months from revisions are undertaken within the cycle only in the data collection and compilation that may entail structural shifts in the data series. (v) the reference date.

data are fully IfroGenH and

event of methodological changes in respect of

procedures and/or significant changes indicated by data sources

*-ternal debt recording and compilation is done with the aid of the latest version of (ommonwealth 8ecretariat <ebt 5ecording and Management 8ystem ((86<5M8) 9@@@V debt is Information of e-ternal

(version 7.:) by the (222, <*2, MoF and <epartment of 8tatistics and Management (<8IM) 5eserve !ank of India (5!I). 2round A@ percent recorded in (86<5M8 9@@@V, e-cept for "5I deposits and short6 defence debt, minor portions of the e-ternal debt are

term debt. FII investment and

also not under the preview of computeriGation.

2nne- 6 II %ey *-ternal <ebt Indicators (per cent) Uear *-ternal <ebt <ebt 8ervice 5atio of Foreign 5atio of Total 5atio of (oncessional 5atio of 8hort6term 5atio of 8hort6 ($8> 5eserves to *-ternal <ebt to
27

million 5atio) *-change

<ebt to Foreign 7 9

Term <ebt to : :=.: :@.9 9C.= 9=.; 9=.B 9A.9 9:.@ 7B.= 7?.C 7C.7 ; C.@ 7@.? 7@.B 9@.? 9=.; 9:.7 9?.: :7.; ::.= :?.C ;7.C =;.C C9.=

Total <ebt ,<) *-change 5eserves = 9?.C :?.C :C.= ::.? :@.? 9C.@ 9;.A 9;.: 9:.A 99.@ 99.= 97.7 9@.: 7?.@ 7?.7 7A.? 7C.= 7?.@ 9@.: 7?.9 7C.= ?=.9 C;.B A ;=.B ;;.? ;;.= ;;.; ;=.: ;;.C ;9.9 :B.= :?.= :?.B :=.; :=.B :A.? :=.? :@.C 9?.; 9:.@ 7B.C 7?.C 7A.? 7=.= 7B.C 97.9 C 7;A.= CA.C A;.= 7?.? 7A.B 9:.9 9=.= 7C.9 7:.9 7@.: ?.A =.7 A.7 :.B 79.= 79.B 7;.7 7;.? 7C.9 7?.? 97.: 7:.B 77.C ?

Total <ebt

7BB@6B7 ?:,?@7 7BB76B9 ?=,9?= 7BB96B: B@,@9: 7BB:6B; B9,AB= 7BB;6B= BB,@@? 7BB=6BA B:,C:@ 7BBA6BC B:,;C@ 7BBC6B? B:,=:7 7BB?6BB BA,??A 7BBB6@@ B?,9A:

7@.9 ?.: C.@ :.B ;.: =.; C.9 =.; ;.; ;.@ :.A 9.? ;.= :.B 7:.9 7;.@ 7A.: 9@.; 7B.: 9@.7 97.9 9A.A ::.7 99.A 9;.?

9@@@6@7 7@7,:9A 7A.A 9@@76@9 B?,?;: 7:.C

9@@96@: 7@;,B7; 7A.@a 9@@:6@; 779,A=: 7A.7b 9@@;6@= 7:;,@@9 =.Bc 9@@=6@A 7:B,77; 7@.7d 9@@A6@C 7C9,:A@ ;.C 9@@C6@? 99;,;@C ;.? 9@@?6@B 99;,;B? ;.; 9@@B67@ 9A@,B:= =.? 9@7@677 :@=,?A7 ;.; 9@77679)5 9@7967:O*

7@@.: 7@=.A 7@B.@ 77=.A 7:?.@ 779.9 7@A.B BB.C

:;=,;B? A.@ :B@,@;? =.B

)5 3 )artially 5evised0 O*3 Ouick *stimates. a b orks out to 79.; per cent, with the e-clusion of pre6payment of $8> :.; billion. orks out to ?.9 per cent, with the e-clusion of pre6payment of $8> :.? billion and
28

redemption of 5esurgent India !onds (5I!s) of $8> =.= billion.

c d

orks out to =.C per cent, with the e-clusion of pre6payment of $8> :?7 million. orks out to A.: per cent, with the e-clusion of India Millennium <eposits (IM<s) repayments of

$8> C.7 billion and pre6payment of $8> 9:.= million.

Multilateral sources continue to dominate IndiaHs sovereign e-ternal debt and Japan remains the single largest bilateral creditor. 2 substantial portion of sovereign e-ternal debt is denominated in 8<5s mainly on account of borrowings from I<2, as well as inclusion of IIMF (reditsH in the countryHs e-ternal debt liabilities since 9@@;6@=.5upee denominated sovereign debt witnessed increase in recent period, reflecting the liberalisation of FII investment in ,overnment Treasury/securities.

,overnment guaranteed e-ternal debt has continued to remain low. =.C.9 The composition of multilateral sovereign borrowing is undergoing a transformation with increase in the share of I!5< and 2<!. This implies lesser access to loans on concessional terms in the coming years, especially with terms on I<2 borrowings beginning to harden. This carries implications for future debt service payments under ,overnment 2ccount.

29

Table =.=3 (reditor6wise pro#ections of *-ternal <ebt 8ervice )ayments under ,overnment 2ccount ($8> million) 8l. (omponents 9@7? 67B I a) b) II c) d) e) c) f) Total Interest C;C =A;(bVd) III Total <ebt 8ervice ;,?;A)ayments (IVII) :,C:9 :,BA: ;,7?= ;,;=C ;,C;= ;,B7C =,@9@ ;,BA: ;,?B7 CA: CC@ CC; CC7 C=@ C7: AAC A7= Multilateral )rincipal Interest ;@9 !ilateral )rincipal Interest :;= 9@7: 67; 9@7B 69@ 9@7; 67= 9@9@ 697 9@7=67A 9@97699 9@7A 67C 9@9969: 9@7C 67?

9,::A 9,=79 9,C@9 9,B?9 :,9@9 :,:=@ :,:B= :,:?C :,::7 :,7?; 7,B:; 9,7@@ 9,9?7 9,==@ 9,CAA 9,B99 9,B?= :,@@@ 9,BC9 9,?=9 ;79 ;97 ;:9 ;:A ;9? ;7@ :?C :=B ::9

7,:BA 7,;=7 7,;?: 7,;C= 7,=;: 7,=AC 7,A9= 7,=CC 7,=A@ 7,AA9 7,@=7 7,7@@ 7,7:; 7,7:: 7,9@? 7,9;= 7,:99 7,9BC 7,:@; 7,;:@ :=7 :;B :;9 ::= :99 :@: 9?@ 9=A 9:9

Total )rincipal 9,B?= :,9@@ :,;7= :,A?: :,BC; ;,7AC ;,:@C ;,9BC ;,9CA ;,9?9(aV

"ote3 The pro#ections are based on debt outstanding as at end6March 9@7: on ,overnment 2ccount for multilateral and bilateral credit under *-ternal 2ssistance. The pro#ections do not include debt service arising out of (ommitted $ndisbursed !alance (($!) and fresh borrowings. It e-cludes debt servicing on account of securities. <efence debt, FII investment in ,overnment

30

Total sovereign e-ternal debt service payments, based on disbursed outstanding debt at end6 March 9@7:, are estimated to rise gradually from $8> :.C billion in 9@7:67; to $8> ;.? billion in 9@996 9: (Table =.=). he institution wise break6up of both multilateral and bilateral components of debt service is contained in 2nne- NN.

Table ;.9 3 8hare of )ublic and )rivate 8ector in &ong6term *-ternal <ebt of <eveloping (ountries ()er cent) 3 Uear 7 9@@@ 9@@= 9@@A 9@@C 9@@? 9@@B 9@7@ 9@77 8ource3 )ublic sector 9 C7.? A=.; A@.@ =;.7 =@.C =9.B =9.7 =@.? )rivate sector : 9?.9 :;.A ;@.@ ;=.B ;B.: ;C.7 ;C.B ;B.9

orld !ank, International <ebt 8tatistics 9@7:.

&ong6term e-ternal debt of developing countries increased by BA.? per cent between 9@@@ and 9@77. !orrower6wise details of long6term e-ternal debt shows a shift towards private sector borrowers with its share in long6term e-ternal debt increasing over the years. There was some decline
31

in the share of private sector in total long6term debt in 9@@B. The share of public and private sector borrowers in long6term debt was almost evenly divided at end 9@77.

I# licit Interest Rate on India's External Debt ()er cent) 2pril6March (omponents Implicit Interest 5ate on Total *-ternal <ebt 1f which3 7 9 : *-ternal 2ssistance "5I <eposits *-ternal (ommercial!orrowings

9@@C6@? 9 :.B 9.: ;.; C.=

9@@?6@B : 9.B 7.? :.= =.A

9@@B67@ ; 9.= 7.= :.B ;.9

9@7@677 =

9@77679 )5 A C

9@7967:O*

9.:

9.?

:.9

32

7.: :.A ;.:

7.7 ;.= =.A

7.9 A.; =.C

Table :.= 3 )ro#ected <ebt 8ervice )ayments ($8> million) Uear )rincipal 7 9@7:67; 9@7;67= 9@7=67A 9@7A67C 9@7C67? 9@7?67B 9@7B69@ 9@9@697 9@97699 9@9969: 9 InterestTotal (9V:) : ; 7B,;:@ ;,9=@ 9:,A?@ 7?,79= ;,99; 99,:;B 99,9A= :,CC7 9A,@:A 99,79@ :,@B? 9=,97B 9@,B7B 9,;AA 9:,:?= 7:,B?A 7,?CC 7=,?A: 7@,;?7 7,=== 79,@:A ?,?7; 7,9A= 7@,@C? C,??: 7,@;A ?,B9B ?,;?7 ??C B,:A?

<ebt service pro#ections based on long6term debt outstanding at the end of March 9@7: show that debt service payments would reach a high of $8> 9A.@ billion ($8> 99.: billion principal repayment and $8> :.? billion interest) in 9@7=67A (Table :.= and Figure :.;). The large debt service payments are primarily on account of higher repayments of *(!s. The repayment of "5I deposits and FII investment in debt securities are not included in the pro#ections.

33

CONC"USION

In the past, emerging6market debt has not been considered a meaningful asset class for global investors. 4owever, over time the fundamentals of emerging economies have evolved and strengthened, which has contributed to the deepening of *M capital markets. In the last decade, *M< as an asset class has matured as *M countries increasingly facilitate access for foreign investors and as the debt market continues to grow. 8pecifically, local currency debt currently surpasses the siGe of e-ternal debt as many sovereigns can access their own deeper domestic markets for funding, thus avoiding e-posure to e-change rate risk.

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RE(ERENCES

economictimes.indiatimes.com
www.imf.org/external/np/sta/ed/ed.htm www.businessdictionary.com www.laGardnet.com/ www.mindfulmoney.co.uk

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